This year has been a rough one for activist short sellers, given the Federal Reserve’s hesitant approach to raising interest rates and the markets’ insistence on reaching ever higher levels. According to Activist Insight Online, 129 short positions had been announced by the end of August, compared to 179 last year and 172 the year before, in the same period. September’s numbers also look to be down.
In activist short campaigns, lawsuits are typically part and parcel of the process, but one announced this week touched a nerve. On Thursday, a day after short sellers Aurelius Value and Viceroy Research published near-simultaneous reports on MiMedx, the drug development and marketing company went after the source.
The Capitol Forum, a Washington D.C.-based research firm, pitches itself as an “in-depth news and analysis service dedicated to informing policymakers, investors, and industry stakeholders on how policy affects market competition.” According to its website, the five-year-old firm has more than 20 journalists, including editors.
MiMedx’s CEO, Pete Petit, has accused The Capitol Forum of being a “shill” for short sellers, saying his company co-operated with the group when it was putting together its analysis and provided “a significant amount of positive information.” But then, he alleges, the Forum published only negative information – “in some instances… outright lies,” and in others, “negative innuendo” – that it then sought to sell to the company’s shareholders over the phone and by email. The Capitol Forum said in an emailed comment yesterday, “The lawsuit is without merit, both legally and factually, and we will defend it vigorously.”
This wouldn’t be the first time the group’s work has been fingered as the basis for a short report. In March, its claims that TransDigm had been pushing up prices for government contracts found its way into a short campaign waged by Andrew Left’s Citron Research, which targeted FleetCor Technologies – another The Capitol Forum subject – the following month. The Forum was also named in a short report by Prescience Point Capital on Stamps.com. Yet as a basis for long-term investing, the Forum’s journalism is a poor guide – all of the stocks are up year-to-date.
Aurelius, one of the short sellers hammering away at MiMedx, was nonetheless unimpressed by the prospect of the company suing The Capitol Forum. “Bullies like Petit, who use power & influence to silence whistleblowers and corrupt our markets, must be exposed,” it tweeted. The short seller did not return a request for comment yesterday.
The short reports allege channel stuffing by the company and an investigation by the Department of Veteran Affairs, claims MiMedx says originate with two ex-employees it is currently suing. Furthermore, MiMedx says it is not the subject of the investigation and is co-operating, facts it says it told The Capitol Forum. Yet given the lawsuit came two weeks after it rebuked the Forum for its report, and only after short sellers emerged, MiMedx’s threat looks like overkill. The stock had largely recovered by Thursday’s close, illustrating why many advisers recommend that the best response to a short attack is simply to do nothing.
Article by Activist Insight